A professional corporation has one shareholder, attorney X. The law practice is almost
exclusively personal injury and worker's compensation practice. The professional
corporation enters into contingent fee contracts with the clients, which contracts comply
with Rule 1.04. This professional corporation makes
loans to clients, although not currently to workers compensation clients, for reasonably
necessary medical and living expenses. Many of the attorney's clients are referred to
medical doctors for examination and diagnostic work. Attorney X also owns a regulated loan
company which makes loans to the general public.

A doctor approaches attorney X about jointly purchasing medical equipment and
facilities. The equipment and facilities would be used in providing medical services to
some of attorney X's law practice clients. Attorney X would receive a share of the profits
earned by the use of the medical equipment and facilities.

Questions Presented

Whether the professional corporation may charge interest on loans extended to client?

Whether the professional corporation may refer clients to the regulated loan company
owned by attorney X to obtain loans; and, if so, is disclosure by the professional
corporation or attorney X required?

Whether ownership of the medical equipment and facilities is a conflict of interest for
attorney X?

If such ownership is a conflict of interest, is disclosure by the professional
corporation or attorney X required?

Discussion

The Texas Disciplinary Rules of Professional Conduct prohibits business transactions
between an attorney and his or her client unless certain requirements are met. Supreme
Court of Texas, Rules Governing The State of Texas, Art. X, Section 9, Rule 1.08(a)(1990). Paragraph (a) of the rule does not
apply to standard commercial transactions between the attorney and client for services or
products that the client generally markets to others, because in such transactions the
attorney has no advantage in dealing with the client. (Id., Rule 1.08(j)) Rule
1.08, Comment 2. In this inquiry it is the attorney, not the client, who is marketing the
services or product. Rule 1.08(a) is therefore applicable and requires compliance with its
subparts if the conduct is otherwise permissible. However, if an attorney is permitted to
enter into such a business transaction with a client, the transaction and terms thereof
must comply with Rule 1.08(a)(1), (2) and (3).

In Ethics Opinion 465 (Texas Bar Journal, Vol. 54, p.
76) one of the questions presented was could an attorney borrow money from a lending
institution for case expenses (court costs, expenses of litigation, or administrative
proceedings, or reasonably necessary medical and living expenses) for a personal injury
client, and ethically charge, or pass on, to the clientas part of the case
expensethe out-of-pocket interests or finance charges of the lending institution.
Although the question in that opinion was answered in the affirmative, it was posited on
the assumption that no conduct by the attorney in the proposed transaction violated the
provisions or concepts of several pertinent rules of the Texas Disciplinary Rules of
Professional Conduct. One of those assumptions was that "The attorney (and/or his
firm) does not own or control the lending institution to the extent that the lending
institution only makes loans to clients of the attorney, and no conflict of interest as
prohibited by Rule 1.06 of the Texas Rules of
Professional Conduct or its comments under such rule, exists." Because in our factual
setting the professional corporation is assumed to make the loans only to its clients,
Opinion 465 specifically excluded the inquiry posed here.

In Opinion 465 the situation concerned a relationship between the attorney and the
lending institution on the loans. There was no relationship between the lending
institution and the attorney's clients. Any problems between the attorney and the lending
institution would not or should not affect the attorney's relationship with the clients.
In our factual situation, the attorney would become, in effect, the lending institution
and the relationship with the client would be between the client and the attorney/lending
institution. Problems that might arise as a result of that lender borrower relationship
could definitely be adversarial.

An attorney is prohibited from providing financial assistance to a client in connection
with pending or contemplated litigation or administrative proceedings, except that: an
attorney may advance or guarantee court costs, expenses of litigation or administrative
proceedings, and reasonably necessary medical and living expenses, the repayment of which
may be contingent on the outcome of the matter. The rules provide how that repayment must
be done if it is contingent on the outcome of the matter. (Id., Rule 1.08(d)). Neither of these rules specifically
mentions the charging of interest.

The rules prohibit representation of a person if the representation of that person
reasonably appears to be or becomes adversely limited by the attorney's responsibility to
another client or to a third person, or by the attorney's own interest. (Rule 1.06(b)(2)). However, an attorney may still represent
a client in such circumstances if (1) the attorney reasonably believes the representation
of the client will not be materially affected, and (2) each affected or potentially
affected client consents to such representation after full disclosure of the existence,
nature, implications, and possible adverse consequences of the common representation and
the advantages involved, if any. (Id., Rule 1.06 (c)(1),(2)). Loyalty is an
essential element in the attorney's relationship to a client, and such loyalty is impaired
when an attorney is not able to consider, recommend, or carry out an appropriate course of
action for one client because of the attorney's own interests or his/her responsibilities
to others. (Id., Rule 1.06, Comments 1 and 4). While a potential possible conflict
may not itself preclude the representation under paragraph (b)(2), it is critical
that one consider the likelihood that a conflict exists or will eventuate and, if it does,
whether it will materially and adversely affect the attorney's independent professional
judgment in considering alternatives or foreclose course's of action that reasonably
should be pursued on behalf of the client (Id., Comment 4). Moreover, an attorney's
own interest should not be permitted to have adverse effects on representation of a
client, even where paragraph (b)(2) is not violated. If the probability of the attorney's
own conduct is in a transaction is in question, the attorney may not be able to give a
client the detached advice required by the attorney-client relationship. Rule 2.01, Comment 5. Furthermore, an attorney should not
allow related business interests to affect representation, for example, by referring
clients to an enterprise in which the attorney has an undisclosed interest. (Id.)

Opinion 186 (Texas Bar Journal, Vol. 21,
February 1961 supplement, p. 127) held it was improper for an attorney who has a credit
and collection service independent of his law office, to permit solicitation of business
for such service by the manager thereof through letters mentioning the attorney's status,
activities and achievement in handling collections. The opinion further states that if the
relationship between a nonattorney and an attorney in a collection service is that of a
partnership in which part of the business is the practice of law, such association would
be improper. (See also, Rule 5.04(b).) Opinion 211 (Texas Bar Journal, Vol. 23, February
1961 supplement, p. 143) held that it is permissible for a firm of attorneys to invest in
the stock of a loan company which lends considerable money to persons who have pending
damage suit claims and from which company the clients of said law firm have borrowed money
in the past, if such connection between the company and the attorneys is not used for the
solicitation of business; nor is it a violation for said law firm to continue to send its
clients, who might have a need to borrow money, to a loan company in which it owns stock,
provided such practice is not engaged in with sufficient notoriety or regularity to
constitute an indirect solicitation of business or advertisement on behalf of the firm of
attorneys, or if it is not done for the purpose of, or as an aid to, securing employment.
(See also, Rules 7.02 and 7.03).

An attorney or law firm is prohibited from sharing or promising to share legal fees
with a nonlawyer unless it is done under certain prescribed circumstances. (Rule 5.04(a)).
The principal reasons for the prohibition are to prevent solicitation by lay persons of
clients for attorneys and to avoid encouraging or assisting nonlawyers in the practice of
law. (Id., Comment 1). The overall thrust of the rule, however, is to assure that
the attorney's independent professional judgment is exercised only for the benefit of the
client, free of compromising influences and loyalties. The fee is only the technical
linkage between the attorney and the nonlawyer or entity. As such, any inducement that
asserts the same undue influence as a fee may lead or result in violation of the policy or
purpose behind the rule.

Conclusion

Therefore, based on the simple and narrow facts stated in the inquiries, all of the
questions and their subparts are answered in the affirmative, provided that there is no
violation of any of the rules, concepts, or comments to the rules, or opinions cited in
either Opinion 465 or in this opinion. Although this committee
does not express an opinion as to the legality of any conduct inquired about herein, it
must point out that such conduct might have legal ramifications. For example, the burden
of establishing prefect fairness, adequacy, and equity of transaction with a client is on
the attorney. Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964). Additionally, when an
attorney acquires property under a preexisting employment agreement with a client made at
the inception of the attorney's prior employment by the client or at or before the
inception of the attorney's present employment by the client, the acquisition is not
tainted by the presumption of fraud that attaches to agreement made during the course of
the attorney-client relationship. Cole v. McCanlies, 6520 S.W.2d 713 (Tex. Civ.
App.Dallas 1981, writ ref'd n.r.e.); Johnson v. Stickney, 152 S.W.2d. 921
(Tex. Civ. App.San Antonio 1941, no writ).